The Talented Mr. Perez

How Obama's Labor nominee muscled a city to drop a Supreme Court case.

Updated March 21, 2013 12:01 a.m. ET

President Obama nominated Thomas Perez on Monday to run the Labor Department, praising him as "a consensus-builder" who passed the nation's "first statewide living-wage law" in Maryland. That isn't his only talent. Consider how Mr. Perez worked behind the scenes to undermine two civil cases against the City of St. Paul in order to stop a Supreme Court case that might have repudiated his discrimination enforcement theories.

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These columns first reported on the curious St. Paul episode in February 2012 ("Squeezed in St. Paul"), after the Minnesota city withdrew a case that it had spent almost a decade litigating and that the U.S. Supreme Court had already agreed to hear. We've since learned more about how it happened, and we've seen emails that illustrate the strong-arm role played by Mr. Perez in his current job as head of the Justice Department's Civil Rights Division. It's a story of how political muscle undermined the rule of law.

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Mr. Perez is a champion of disparate-impact theory, which purports to prove racial discrimination by examining statistics rather than intent or specific cases. Soon after Mr. Perez assumed his job in October 2009, Attorney General Eric Holder established a unit under Mr. Perez to examine loans to minorities. The unit proceeded to threaten a series of lawsuits against banks under the 1968 Fair Housing Act.

The lenders quickly settled these cases rather than run the reputational risk of being called racist in court. But on November 7, 2011 the Supreme Court agreed to hear the City of St. Paul's appeal in Magner v. Gallagher, which concerned the legality of disparate-impact theory in housing. St. Paul believed it had an excellent chance to prevail because the text of the Fair Housing Act doesn't explicitly allow for disparate impact.

That's when the Obama Administration kicked into gear. On November 17, Mr. Perez emailed a former colleague, Thomas Fraser at the Fredrikson & Byron law firm in Minnesota, to probe if city officials might be convinced to withdraw Magner, according to documents that the Justice Department sent to Congressional investigators. Mr. Fraser referred Mr. Perez to his colleague, David Lillehaug, who was advising St. Paul on a pending False Claims Act case against the city filed by a private citizen.

Mr. Perez had stumbled onto a potential quid pro quo: The feds could decline to intervene in the false claims case (known as Newell) in exchange for the city withdrawing Magner from the Supreme Court. But that was no sure thing. The Department of Housing and Urban Development had already recommended that Justice join the Newell lawsuit against St. Paul. On November 22, Justice's career staff in the Civil Division's civil fraud section conveyed that recommendation in a memo to Civil Division chief Tony West for his approval.

ENLARGE

Thomas "Tom" Perez, assistant attorney general at the U.S. Department of Justice and nominee to become U.S. secretary of labor.
Bloomberg

On November 28, Mr. Perez asked John Buchko—a trial attorney in the Civil Rights Division who is the division's designated ethics officer and a Perez subordinate—for a legal opinion about whether the quid pro quo was ethically permissible. Mr. Buchko noted there was no ethics rule addressing such a deal and thus no prohibition.

On November 30, Mr. West, the Civil Division chief, emailed Mr. Perez and informed him that HUD had formally recommended that Justice join the Newell lawsuit. Mr. Perez responded by email a few minutes later: "I am confident that position has changed. You will be hearing from Helen today." That was a reference to HUD general counsel Helen Kanovsky, who had earlier that month issued the draft rule making disparate impact a part of HUD's housing enforcement for the first time.

In early December, Mr. Perez "connected" HUD assistant secretary Sara Pratt with Mr. Lillehaug, according to an October 26, 2012 letter from Congressional investigators to HUD Secretary Shaun Donovan. Ms. Pratt then met with St. Paul Mayor Chris Coleman, City Attorney Sara Grewing and Mr. Lillehaug on December 13 to talk about Newell. Mr. Lillehaug described the meeting as "productive" in an email to Ms. Pratt on December 14, but he lamented the city's meeting with Mr. West's Civil Division, whose lawyers "described their job as 'bringing in money to the U.S. Treasury.'"

In early January, Justice made a proposal to St. Paul: The feds would decline to intervene in another private False Claims Act case against St. Paul (known as Ellis) if the city would withdraw Magner from the Supreme Court. Then Justice would also decline to intervene in Newell.

St. Paul and its attorney, Mr. Lillehaug, responded that he wanted Justice to intervene and settle the false-claims cases (that could cost the city millions of dollars) to get them off the city's docket. Justice declined that offer, according to our sources. (Mr. Lillehaug declined comment on Monday and referred us to the City of St. Paul, which did not respond to our inquiries.)

Meanwhile, the legal clock was ticking. The Supreme Court was scheduled to hear oral arguments in Magner in late February 2012 and the statutory seal on the Newell lawsuit—which kept the case from public view—was due to expire in March.

Former Vice President and Minnesota Senator Walter Mondale, who helped to write the Fair Housing Act, somehow heard about the case and called Mayor Coleman, a fellow Democrat, to express his concern. On January 29, Mr. Perez emailed a colleague in the Civil Rights Division, Mark Kappelhoff, that "The call was made friday by mondale that we discussed." Mr. Mondale did not respond to a request for comment.

On February 3, 2012, Mr. Perez and his deputy, special counsel for fair lending Eric Halperin, met in St. Paul with Mayor Coleman, Deputy Mayor Paul Williams, City Attorney Grewing and Mr. Lillehaug. Our sources say that Mr. Lillehaug and Ms. Grewing told Congressional investigators that Mr. Perez talked about the importance of disparate impact, mentioned Mr. Mondale's concern and proposed another deal: Justice would decline to intervene in Newell, the city would withdraw its Supreme Court case, and then the feds would also decline to intervene in Ellis. The mayor agreed.

On February 9, Justice filed a notice in federal court in Minnesota, declining to join Newell. On February 10, St. Paul moved to withdraw Magner from the Supreme Court and issued a press release that explained:

"The City of Saint Paul, national civil rights organizations, and legal scholars believe that, if Saint Paul prevails in the U.S. Supreme Court, such a result could completely eliminate 'disparate impact' civil rights enforcement, including under the Fair Housing Act and the Equal Credit Opportunity Act. This would undercut important and necessary civil rights cases throughout the nation. The risk of such an unfortunate outcome is the primary reason the city has asked the Supreme Court to dismiss the petition."

On June 18, 2012, Justice filed a notice with the same federal court in Minnesota, declining this time to join Ellis, the second False Claims Act case against the city. And on February 8, 2013, HUD issued its final disparate-impact rule, codifying the practice as legal under the Fair Housing Act. Mr. Perez's coup was complete.

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Congressmen Darrell Issa, Lamar Smith and Patrick McHenry, along with Senator Chuck Grassley, the ranking member on the Judiciary Committee, are investigating the St. Paul quid pro quo, and with good reason. To recap: A senior Justice Department official, Mr. Perez, intervened to undermine two civil complaints against the City of St. Paul in order to get St. Paul to drop a Supreme Court case that might have blown apart the legal rationale for his dubious discrimination crusade against law-abiding businesses.

Justice officials claim to be confident that their disparate-impact cases are legal, but if that's true then why not welcome a chance for the Justices to rule in their favor? Why go to such lengths to kill such a judicial review? Justice didn't respond to our requests to speak with Messrs. Perez and West or otherwise respond to this chronology.

Meanwhile, Mr. West has been nominated for the number three job at Justice, Associate Attorney General, and now the talented Mr. Perez is being elevated to the Obama cabinet. The question the Senate needs to ask during confirmation hearings is whether a man who is willing to play politics with disparate-impact law and the Supreme Court can be trusted with the vast enforcement power of the Labor Department?

Separately, the Supreme Court asked the Solicitor General in October for advice on whether to hear Mount Holly v. Mt. Holly Gardens Citizens in Action, another case that examines the legality of disparate impact under the Fair Housing Act. Given the Obama Administration's behavior, the Justices shouldn't wait for an answer. They should take the case and give Mr. Perez the legal ruling he fears so much that he was willing to subvert other cases to stop it.

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